A provocative, unsponsored assessment of current and future legal, regulatory, marketplace, and cultural issues affecting telecommunications and information policy presented by Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law, Penn State University

Thursday, January 6, 2011

One key reason for confusion about Network Neutrality lies in the many different and inconsistent frames used to shape the debate.The Tea Party has entered the fray by characterizing the matter primarily in terms of freedom.Republicans decry the “job killing” impact of the FCC’s rules.Network Neutrality advocates appear ambivalent whether the FCC has capitulated to special interests, or shaped a pragmatic compromise.

Older frames typically use hyperbole to justify government intervention or forbearance.Network Neutrality advocates frame the matter as impacting the Internet’s openness and its ability to incubate new ventures such as Google, Netflix, Amazon and EBay.Opponents reject the need for government safeguards based on the view that there is no problem requiring a solution.

Everyone seems to have ignored a more basic question whether or not the Internet access market currently operates competitively.If the market is sufficiently competitive one can vote with their dollars and change carriers if and when the carrier operates in ways subscribers do not like.Of course there are transaction costs in making such a move, and in the wireless market carriers offer subsidized handsets to lock in subscribers for two years.As well the matter of identifying the cause of network congestion, sluggish service or discriminatory practices presents a forensic problem.In light of the interconnected and integrated nature of the Internet, where content and conduit converge, an end user cannot readily determine if degradation in service—however defined—is caused by the content or application provider, a long haul carrier, or the ISP providing first and last mile access to the Internet cloud.

Still if the Internet access marketplace operates competitively, then consumers, if so inclined, can reward or punish ISPs based on the real or perceived openness.Even in competitive markets, carriers can agree explicitly or decide unilaterally not to emphasize or market different degrees of openness.But at least the potential exists for an ISP to identify the openness factor and target consumers who consider it a priority.This is not happening in the Internet access marketplace either because openness, transparency and nondiscrimination are non-issues, because all ISPs are fair and neutral, or because consumers do not have the ability to identify and subscriber to an ISP promising fair and neutral service should the existing carrier explicitly or subversively operate in a non-neutral manner.

So competition in the Internet access marketplace matters greatly and somehow this issue constitutes a “huge omission” in the debate according to the fair minded writers at The Economist.See A tangled web, America’s new internet rules are mostly sensible—but the country’s real web problem is far more basic (Dec. 29, 2010); available at: http://www.economist.com/node/17800141.If I had access to a competitive marketplace ISPs would have offer me something better than the one (and only one viable) option I have now: $59.95 plus tax and fees for downloads up to 15Mbps, anduploads up to 3Mbps, or $40.95 plus tax and fees for up to 1.5 Mbps download and uploads up to 384 Kbps.

Just because many consumers have a choice of two broadband distribution platforms (cable and DSL) does not by definition ensure robust competition with affordable rates. The Economist dares to report the issue frame ignored by the FCC and others:

the failure in America to tackle the underlying lack of competition in the provision of internet access. In other rich countries it would not matter if some operators blocked some sites: consumers could switch to a rival provider. That is because the big telecoms firms with wires into people’s homes have to offer access to their networks on a wholesale basis, ensuring vigorous competition between dozens of providers, with lower prices and faster connections than are available in America. Getting America’s phone and cable companies to open up their networks to others would be a lot harder for politicians than prattling on about neutrality; but it would do far more to open up the net.

Tuesday, January 4, 2011

In a split decision, likely to face congressional and judicial review, the FCC issued rules designed to promote transparent, unblocked and nondiscriminatory Internet access. [1]Ostensibly structured to offer an acceptable compromise the Report and Order imposes basic network neutrality obligations on Internet Service Providers (“ISPs”) [2] with exceptions made for reasonable network management, [3] specialized services [4] and wireless access. [5]The FCC reiterated that to ensure open Internet the Commission must establish clear and certain rules applicable to both fixed. i.e., wire-based and mobile, i.e., wireless, ISPs.

The transparency requirement obligates all ISPs to disclose their network management practices, performance characteristics, and terms and conditions of their broadband services. [6]

The FCC adopted different requirements for fixed and broadband providers on the other two key requirements.Fixed providers may not block lawful content, applications, services, or non-harmful devices while mobile broadband providers may not block lawful websites, or block applications that compete with their voice or video telephony services. [7] On the other key requirement fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic while mobile carriers face a general no blocking rule that guarantees end users’ access to the web and protects against mobile broadband providers’ blocking applications that compete with their other primary service offering—voice and video telephony. [8]

The Report and Order rejects assertions that network neutrality requirements would stifle innovation reduce incentives to invest in network infrastructure and reduce employment in the Internet economy:

We believe these rules, applied with the complementary principle of reasonable network management, will empower and protect consumers and innovators while helping ensure that the Internet continues to flourish, with robust private investment and rapid innovation at both the core and the edge of the network.This is consistent with the National Broadband Plan goal of broadband access that is ubiquitous and fast, promoting the global competitiveness of the United States. [9]

In light of strident dissents from the two Republican Commissioners, the Report and Order appears to emphasize that the final rules logically follow from the nonpartisan consensus reached in documents created in 2005 and 2007, [10] and do not violate the Constitution,[11] particularly First Amendment expression rights of ISPs and the prohibition on government takings in the Fifth Amendment.

Additionally the Report and Order extensively attempts to demonstrate that the FCC has lawful jurisdiction to promulgate network neutrality rules, primarily because Congress, in Section 706 of the Telecommunications Act, authorized the Commission to take all reasonable steps to promote widespread access to the Internet. [12] In light of the D.C. Circuit Court of Appeals reversal of the FCC’s sanctioning Comcast for violating Network Neutrality principles, the Commission must establish clear and direct statutory authority to impose new rules.The Commission heavily relies on Section 706 of the Telecommunications Act which does not explicitly authorize regulation and rule making.The FCC infers that the duty to encourage the deployment of “advanced telecommunications capability” authorizes the Commission to use whatever tools it considers necessary to achieve timely progress. [13]

The assumption of statutory authority requires two novel reinterpretations of the definition for telecommunications contained in the Communications Act, as amended.First, the FCC has to consider advanced telecommunications capability to include Internet access, [14] despite having previously concluded that the technologies providing such access constitute an insignificant factor when the Commission determined that cable modem service constituted an information service and not a telecommunications service. [15]Second, the FCC now has to elevate the significance of the telecommunications bit transmission function in Internet access [16] to trigger public interest concerns about competition and anticompetitive practices having previously subordinated it so that the Commission could provide an unregulated “safe harbor” for all Internet access technologies including cable modem service, [17] Digital SubscriberLines, [18] Broadband over Power Lines [19] and wireless services. [20] Now the FCC wants to validate the telecommunications component as the driver for public interest regulatory safeguards.

Despite having previously concluded that the broadband marketplace was robustly competitive and close to ubiquitous, the Commission now cites to more recent market penetration data to support its involvement:

Section 706(b) of the 1996 Act provides additional authority to take actions such as enforcing open Internet principles.It directs the Commission to undertake annual inquiries concerning the availability of advanced telecommunications capability to all Americans and requires that, if the Commission finds that such capability is not being deployed in a reasonable and timely fashion, it “shall take immediate action to accelerate deployment of such capability by removing barriers to infrastructure investment and by promoting competition in the telecommunications market.”In July 2010, the Commission “conclude[d] that broadband deployment to all Americans is not reasonable and timely” and noted that “[a]s a consequence of that conclusion,” Section 706(b) was triggered. Section 706(b) therefore provides express authority for the pro-investment, pro-competition rules we adopt today. [21]

Additionally the FCC invokes elements of Title II, III and Title VI regulatory authority to ISPs that qualify for the largely unregulated statutory classification of information service providers and not telecommunications service providers for which Title II customarily applies. Instead of stating that ISPs operate as telecommunications service providers when they provide essential first and last mile access to the Internet—a scenario suggested by FCC Chairman Julius Genachowski and now apparently rejected—the Report and Order states that because some Internet-based services compete with traditional telephone, broadcast and video services, the Commission has jurisdiction to impose rules and regulations to prevent anticompetitive practices and to promote competition.

The FCC justifies imposing Network Neutrality rules on ISPs based on the Commission’s conclusion that ISPs have the incentive and ability to engage in anticompetitive practices that limit Internet openness in terms of content, applications, services, and devices accessed over or connected to broadband Internet access service. The Commission provides three examples suggesting that ISPs may have incentives to block or degrade content that competes with that offered by the ISP or an affiliate, to impose surcharges on competing content providers in addition to end user subscription fees, and to degrade competitors’ traffic:

1)“[B]roadband providers may have economic incentives to block or otherwise disadvantage specific edge providers or classes of edge providers, for example by controlling the transmission of network traffic over a broadband connection, including the price and quality of access to end users.A broadband provider might use this power to benefit its own or affiliated offerings at the expense of unaffiliated offerings.” [22]

2)“[B]roadband providers may have incentives to increase revenues by charging edge providers, who already pay for their own connections to the Internet, for access or prioritized access to end users.Although broadband providers have not historically imposed such fees, they have argued they should be permitted to do so. A broadband provider could force edge providers to pay inefficiently high fees because that broadband provider is typically an edge provider’s only option for reaching a particular end user. Thus broadband providers have the ability to act as gatekeepers.” [23]

3)“[I]f broadband providers can profitably charge edge providers for prioritized access to end users, they will have an incentive to degrade or decline to increase the quality of the service they provide to non-prioritized traffic.This would increase the gap in quality (such as latency in transmission) between prioritized access and non-prioritized access, induce more edge providers to pay for prioritized access, and allow broadband providers to charge higher prices for prioritized access.Even more damaging, broadband providers might withhold or decline to expand capacity in order to “squeeze” non-prioritized traffic, a strategy that would increase the likelihood of network congestion and confront edge providers with a choice between accepting low-quality transmission or paying fees for prioritized access to end users.[24]

The FCC considers the three examples of discrimination as more than theoretical in light of actual examples where ISPs, such as Comcast, blocked or degraded traffic without legitimate network management concerns.Similarly the Commission states that the benefits in guarding against such anticompetitive practices outweighs the costs. [25]

[2]Specifically the FCC imposes rules on the providers of broadband Internet access service, defined as a“mass-market retail service by wire or radio that provides the capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communications service, but excluding dial-up Internet access service.This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part.” Id. at ¶44.

[3]“A network management practice is reasonable if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service.” Id. at ¶82.

[4]“‘[S]pecialized services,’ such as some broadband providers’ existing facilities-based VoIP and Internet Protocol-video offerings, differ from broadband Internet access service . . ..” Id. at ¶112. “We will closely monitor the robustness and affordability of broadband Internet access services, with a particular focus on any signs that specialized services are in any way retarding the growth of or constricting capacity available for broadband Internet access service.We fully expect that broadband providers will increase capacity offered for broadband Internet access service if they expand network capacity to accommodate specialized services.We would be concerned if capacity for broadband Internet access service did not keep pace.We also expect broadband providers to disclose information about specialized services’ impact, if any, on last-mile capacity available for, and the performance of, broadband Internet access service.We may consider additional disclosure requirements in this area in our related proceeding regarding consumer transparency and disclosure.” Id. at ¶114.

[5]Despite the likelihood that wireless network access will grow and perhaps become the primary way people access the Internet, the FCC established relaxed anti-blocking rules based on spectrum and operational limitations not applicable to wire-based networks. “A person engaged in the provision of mobile broadband Internet access service, insofar as such person is so engaged, shall not block consumers from accessing lawful websites, subject to reasonable network management; nor shall such person block applications that compete with the provider’s voice or video telephony services, subject to reasonable network management.” Id. at ¶99.

[6]Id. at ¶1.“A person engaged in the provision of broadband Internet access service shall publicly disclose accurate information regarding the network management practices, performance, and commercial terms of its broadband Internet access services sufficient for consumers to make informed choices regarding use of such services and for content, application, service, and device providers to develop, market, and maintain Internet offerings.” Id. at ¶54.

[10]“The rules we proposed in the Open Internet NPRM and those we adopt today follow directly from the Commission’s bipartisan Internet Policy Statement, adopted unanimously in 2005 and made temporarily enforceable for certain broadband providers in 2005 and 2007; openness protections the Commission established in 2007 for users of certain wireless spectrum; and a notice of inquiry in 2007 that asked, among other things, whether the Commission should add a principle of nondiscrimination to the Internet Policy Statement.Our rules build upon these actions, first and foremost by requiring broadband providers to be transparent in their network management practices, so that end users can make informed choices and innovators can develop, market, and maintain Internet-based offerings.The rules also prevent certain forms of blocking and discrimination with respect to content, applications, services, and devices that depend on or connect to the Internet.” Id. at ¶5(citations omitted).

[13]“As noted, Section 706 of the 1996 Act directs the Commission (along with state commissions) to take actions that encourage the deployment of ‘advanced telecommunications capability.’. . . Under Section 706(a), the Commission must encourage the deployment of such capability by ‘utilizing, in a manner consistent with the public interest, convenience, and necessity,’ various tools including “measures that promote competition in the local telecommunications market, or other regulating methods that remove barriers to infrastructure investment.”Id. at ¶117.

[16]Note that before the FCC deregulated Internet access, the Commission considered it possible to separate the telecommunications component: “We conclude that advanced services are telecommunications services. The Commission has repeatedly held that specific packet-switched services are ‘basic services,’ that is to say, pure transmission services. xDSL and packet switching are simply transmission technologies. . . . An enduser may utilize a telecommunications service together with an information service, as in the case of Internet access. In such a case, however, we treat the two services separately: the first service is a telecommunications service (e.g., the xDSL-enabled transmission path), and the second service is an information service, in this case Internet access.” Deployment of Wireline Services Offering Advanced Telecommunications Capability, Memorandum Opinion and Order, and Notice of Proposed Rulemaking 13 FCC Rcd. 24012, 24029-30 (1998).

[19]United Power Line Council’s Petition for Declaratory Ruling Regarding the Classification of Broadband Over Power Line Internet Access Service as an Information Service, Memorandum Opinion and Order, 21 FCC Rcd. 13281 (2006).

[20]Appropriate Regulatory Treatment for Broadband Access to the Internet Over Wireless

[25]“By comparison to the benefits of these prophylactic measures, the costs associated with the open Internet rules adopted here are likely small. Broadband providers generally endorse openness norms—including the transparency and no blocking principles—as beneficial and in line with current and planned business practices (though they do not uniformly support rules making them enforceable) Even to the extent rules require some additional disclosure of broadband providers’ practices, the costs of compliance should be modest.” Id. at ¶39.

About Me

Rob Frieden serves as Pioneers Chair and Professor of Telecommunications and Law at Penn State University.He also provides legal, management and market forecasting consultancy services and has written four books, most recently Winning the Silicon Sweepstakes: Can the United States Compete in Global Telecommunications published by Yale University Press. Rob has written over one hundred articles in law reviews and telecommunications policy journals and has provided commentary in a variety of trade periodicals. He updates a major communications treatise: All About Cable and Broadband (Law Journal Press).

Rob has held senior policy making positions in international telecommunications at the United States Federal Communications Commission and the National Telecommunications and Information Administration.In the private sector, he practiced law in Washington, D.C., and served as Assistant General Counsel at PTAT System, Inc. where he handled corporate, transactional and regulatory issues for the nation's first private undersea fiber optic cable company. Professor Frieden holds a B.A., with distinction, from the University of Pennsylvania (1977) and a J.D. from the University of Virginia (1980).